Rare Disaster Probability and Options Pricing. Robert Barro, January 2020, Paper, “We derive an option-pricing formula from recursive preferences and estimate rare disaster probability. The new options-pricing formula applies to far-out-of-the money put options on the stock market when disaster risk dominates, the size distribution of disasters follows a power law, and the economy has a representative agent with a constant-relative-risk-aversion utility function. The formula conforms with options data on the S&P 500 index from 1983-2018 and for analogous indices for other countries. The disaster probability, inferred from monthly fixed effects, is highly correlated across countries, peaks during the 2008-2009 financial crisis, and forecasts rates of economic growth.Link

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Extending the Race between Education and Technology. Claudia Goldin, Lawrence Katz, January 11, 2020, Paper, “The race between education and technology provides a canonical framework that does an excellent job of explaining US wage structure changes across the twentieth century. The framework involves secular increases in the demand for more-educated workers from skill-biased technological change, combined with variations in the supply of skills from changes in educational access. We expand the analysis backwards and forwards. The framework helps explain rising skill differentials in the nineteenth and twenty-first centuries, but needs to be augmented to illuminate the recent convexification of education returns and implied slowdown in the growth of the relative demand.Link

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Baystate Business: Right-to-Repair. Gabriel Chodorow-Reich, January 10, 2020, Audio, “Harvard economist Gabriel Chodorow-Reich on his proposal for the government to use restaurant coupons as a way to combat the next recession (9:43) ” LInk

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Looking Back at Fifty Years of the Clean Air Act. Joseph Aldy, January 2020, Paper, “Since 1970, transportation, power generation, and manufacturing have dramatically transformed as air pollutant emissions have fallen significantly. To evaluate the causal impacts of the Clean Air Act on these changes, we synthesize and review retrospective analyses of air quality regulations. The geographic heterogeneity in regulatory stringency common to many regulations has important implications for emissions, public health, compliance costs, and employment. Cap-and-trade programs have delivered greater emission reductions at lower cost than conventional regulatory mandates, but policy practice has fallen short of the cost-effective ideal. Implementing regulations in imperfectly competitive markets have also influenced the Clean Air Act’s benefits and costs.Link

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The Changing Face of Economics. Dani Rodrik, January 10, 2020, Opinion, “Economists necessarily lack evidence about alternative institutional arrangements that are distant from our current reality. The challenge is to remain true to empiricism without crowding out the imagination needed to envisage the inclusive and freedom-enhancing institutions of the future.Link

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National Fiscal Policies to Fight Recessions in U.S. States. Karen Dynan, Doug Elmendorf, 2020, Paper, “States experience recessions that differ in magnitude and timing from national recessions, and those state-level recessions have significant economic and social costs. Yet, countercyclical policy is often viewed through a national lens, where a worsening of national economic conditions leads to policies designed to lower national unemployment or boost national output. Balanced-budget rules prevent states from undertaking effective countercyclical fiscal policies on their own, but the federal government can adopt policies that respond to state-specific needs. For example, cutting federal payroll taxes on a state-by-state basis when unemployment rates rise would substantially reduce the harm of higher unemployment.Link

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Why Firms Offer Paid Parental Leave: An Exploratory Study. Claudia Goldin, January 2020, Paper, “Why do competitive firms in the US provide paid parental leave (PPL)? Which firms do and to what extent? We use several firm- and individual-level data sets to answer these questions. These include the BLS-Employee Benefit Survey (EBS) for 2010 to 2018 and an extensive firm-level data collection that we compiled. Our work is undergirded by a two-period model with competitive firms whose workers vary by their optimal firm-specific training and the probability that each will remain on the job after PPL is taken. We find that firm-provided PPL has greatly increased in the last two decades and generally covers new fathers. The levels of provision differ greatly by the industry, firm size, and the degree of firm-specific training. But even the top-of-the-line firm in the US provides fewer fully paid parental weeks than does the median OECD nation.Link

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Lebanon’s Perfect Storm. Ishac Diwan, January 9, 2020, Opinion, “After years of maintaining a dysfunctional political economy based on sectarianism and rentierism, Lebanon’s ruling elites are being confronted with simultaneous financial, economic, and political crises. The question now is how they respond to a reformist movement demanding fundamental change, including a new political settlement.Link

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Do Americans really need to be more thrifty? Lawrence Summers, January 7, 2020, Opinion, “Few economic virtues are more universally applauded than thrift. Going back at least to Ben Franklin, Americans have equated greater thriftiness with greater worthiness. Progressives decry the limited saving and wealth accumulation of middle-income families and express alarm over the widely reported “fact” that 40 percent of Americans cannot come up with $400 in an emergency. Conservatives applaud thrift as an aspect of self-reliance and propose ideas such as health-savings accounts to help families prepare for emergencies. Moderates believe universal social insurance programs such as Social Security and Medicare, which they label as entitlements, should be modest or even curtailed out of fiscal prudence.Link

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Rising inequality is not balanced by intergenerational mobility. Jason Beckfield, January 7, 2020, Opinion, “The United States currently exhibits more economic inequality than any peer nation, and surveys of US adults support the idea that inequality is acceptable if it is balanced by mobility. Many are untroubled if doctors make 10 or 20 times what janitors make, as long as janitors’ sons have opportunities to become doctors. In an era of rising income and wealth inequality in the United States since the 1970s, that balance of inequality and mobility grows in salience. Enter Song et al.’s paper, “Long-term decline in intergenerational mobility in the United States since the 1850s” (1), which uses linked household and population records on the occupations of generations of US-born white men, along with data from several representative surveys, to describe how social mobility in the United States has changed since before the Civil War and before industrialization transformed economic production. Comparing the occupations of sons to the occupations of their fathers, Song et al. (1) paint a troubling picture of rising intergenerational persistence in occupational status. One’s social class of origin—the class one is born into—has become “stickier” since 1850. That is, sons’ occupations are increasingly predictable from fathers’ occupations. The headline finding is that sons born after 1940—the Baby Boomers, Gen Xers, and Millennials of today—are significantly less likely to surpass their fathers in occupational attainment. Fewer janitors’ sons are becoming doctors today.Link

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